The Private Credit Capital Stack: Senior Debt, Mezzanine, and Unitranche
By Zolvo Team · 3 min read
A private credit deal is rarely financed with a single kind of money. It is built from a stack of capital layers, each sitting at a different point on the trade-off between risk, return, and priority of payment. Understanding that capital stack, and where a given facility sits in it, is the starting point for underwriting, structuring, and servicing private debt. This guide walks the stack from the safest layer to the most speculative, and explains the unitranche structure that reshaped it.
What the Capital Stack Is
The capital stack is the ordered set of claims on a business or asset, ranked by who gets paid first and who bears the most risk. At the top sits senior debt, repaid first and usually secured. At the bottom sits common equity, paid last but with unlimited upside. In between sit layers of subordinated debt and preferred equity that trade a lower priority for a higher return. Every financing decision, for the borrower and each lender, is really a decision about which layer of this stack to occupy.
Senior Debt
Senior debt is the foundation. It is first in line to be repaid, typically secured by a first lien on the borrower's assets, and priced at the lowest rate because it carries the least risk. In a leveraged deal, senior debt provides the largest slice of the financing, and its lenders accept a modest return in exchange for being first out if things go wrong. Everything above it in the stack is subordinated to it.
Mezzanine
Mezzanine financing is the layer between senior debt and equity. It is subordinated to the senior lender but ranks ahead of the owners, and it is usually structured as subordinated debt with an equity kicker such as warrants, or as preferred equity. Its return sits above senior rates to compensate for the junior position, and interest is often split between cash pay and payment-in-kind (PIK), where part of the return accrues to the balance rather than being paid in cash. Mezzanine fills the gap between what senior lenders will advance and the total capital a deal needs, without the owners writing the whole remaining check as equity.
Unitranche
The unitranche structure collapses the senior and subordinated layers into one. Instead of arranging separate senior and mezzanine facilities, the borrower takes a single loan at one blended rate under one credit agreement. Behind the scenes, the lenders often divide the economics privately through an agreement among lenders, creating a first-out tranche that behaves like senior debt and a last-out tranche that earns a higher, junior-like return, but the borrower faces a single facility. Unitranche rose alongside private credit because funds can hold an entire facility on their own balance sheet, and borrowers get speed, certainty, and one relationship.
Why the Stack Matters for Private Credit
Private credit funds increasingly hold whole layers of the stack, or whole unitranche facilities, that banks once syndicated. That concentration changes the work. A fund is not just underwriting a slice; it is originating, funding, and servicing a bespoke, long-dated position, tracking cash and accrued PIK interest, testing covenants, and reporting the whole structure to its limited partners. The more of the stack a fund holds, the more the operational discipline behind the position, not just its structure, determines the outcome.
How Zolvo Fits
Zolvo automates the servicing layer for private-debt positions across the stack. It applies and reconciles payments, tracks cash and accrued PIK interest, monitors covenants and portfolio performance, and produces the LP and investor reporting these structures require, on top of the systems a fund already runs. The point is to let a fund service a growing private credit book, including mezzanine and unitranche facilities, without growing the back office to match.